Monday, February 1, 2010

Yum! Brands Inc. (NYSE: YUM): Q4 Earnings Preview 2009

Yum! Brands Inc. (NYSE: YUM), owner of fast-food joints KFC, Taco Bell, and Pizza Hut, is scheduled to release its fiscal fourth quarter 2010 earnings after the closing bell on Wednesday, February 3, 2010. Analysts, on average, expect the company to report earnings of 48 cents a share on revenue of $3.33 billion. In the year ago quarter, the company reported earnings of 46 cents per share on revenue of $3.38 billion.
Yum! Brands, Inc. operates as a quick service restaurant company. The company develops, operates, franchises, and licenses a system of restaurants, which prepare, package, and sell various food items. The company has more than 36,000 restaurants in more than 110 countries and territories.
In the preceding third quarter, the Louisville, Kentucky-based company reported that its profit rose 18% from last year, helped by strong profit growth in China and the U.S. Net income for the third quarter of $334 million or $0.69 per share, compared to $282 million or $0.58 per share for the year-ago period. Excluding special items, the latest quarter adjusted earnings were $0.70 per share. Revenue for the third quarter declined 2% to $2.78 billion from $2.84 billion in the same quarter last year. Analysts, on average, expected the company to earn $0.58 per share on revenue of $2.79 billion.
The company delivered a 15% increase in operating profit for the third quarter before special items, including impressive 32% growth in China and 18% growth in the United States.On the downside, Yum Brands reported a 6 percent decrease in same-store sales in the third quarter. Pizza Hut posted a 13 percent drop in U.S. sales at restaurants open more than a year.
Yum! Brands expects its full-year 2009 system sales growth, excluding foreign currency translation, is estimated to be 9% in mainland China and 5% in YRI. The company also sees same-store-sales decline of 4% in the U.S. In addition, full-year negative foreign currency translation impact is expected to be about $45 million.
For the fourth quarter, the company's same-store-sales performance is projected to be down 3% in mainland China, 1% in YRI and 8% in the U.S.
For fiscal 2010, the company plans to deliver at least 10% earnings per share growth, benefiting from international new unit development, disciplined cost management, modest same-store-sales growth and favorable foreign currency translation. During 2010, Yum intends to add 1,400 new stores in mainland China and internationally. The retailer also intends to increase operating profit in China by 15%, from $117 million to $135.5 million, internationally by 10%, from $131 million to $146.1 million, and in the U.S. by 5%, from $211 million to $221.5 million.
In December, the restaurant chains operator affirmed its adjusted earnings per share growth of 12% for fiscal 2009. The company also sees fiscal 2010 earnings per share growth excluding special items of at least 10%.
The company has benefited due its strong global portfolio. Yum Brands has particularly gained immensely from growing Chinese appetite for American fast food. China's growing middle class and rising per capital income offers tremendous potential for further growth of the company. The company has about 3,000 stores in china, which contributed 27.7 percent to the total revenue in 2008. Yum Brands aims to open more than 20,000 restaurants in China. Recently, the company outlined its growth plans for India. Yum Brands intends to open 1,000 fast-food outlets by 2015.
However, the fast food chain may face pressure as heightened competition and escalating price- war in fast food space could erode the company's bottomline.
Among other developments, in November, Yum! Brands Inc. declared a dividend of $0.21 per share of common stock, which will be distributed February 5, 2010, to shareholders of record at the close of business on January 15, 2010.
The company's stock currently trades at a forward P/E (fye 27-Dec-10) of 14.37 and PEG ratio (5 yr expected) of 1.33. In terms of stock performance, Yum shares have gained 24 percent over the past year.

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